Strong signal for growth and sound public finances

Investment, structural reforms and consolidation are the three guidelines for the planned federal budget for 2025. The cabinet has now adopted the medium-term fiscal policy and structural plan (FSP--medium-term fiscal policy and structural plan) for the years 2025 to 2029. It has thus addressed the question of how much general government spending may grow in the coming years. The draft budget envisages expenditure totalling around 503 billion euros.

Short-term increase in government spending

A significant increase in net expenditure of 4.4 and 4.5 percent is planned for this year and next. The reason for this is the urgent need for investment in infrastructure, security and defence. In the following years, the growth rates for net expenditure will fall gradually: to 2.3 percent in 2027 and to 1.7 and 1.6 percent in 2028 and 2029 respectively. The aim is to achieve fiscal consolidation by the end of the plan's time frame.

Initiatives for stronger growth

This consolidation programme is accompanied by measures aimed at boosting economic growth. In turn, the growing economy should lead to higher state revenues. The Federal Government is thus sending a powerful signal in favour of economic growth and sustainable public finances in Germany.

Exemption rule for defence spending

The financial plan also consistently applies the rules of the Stability and Growth Pact - as well as existing flexibilities. This includes the exception clause for defence spending. This allows EU member states to spend up to an additional 1.5 percent of their economic strength on defence without the expenditure being counted towards the deficit ceiling of three percent.

European requirements

The Stability and Growth Pact is a set of rules designed to ensure that the countries of the European Union strive for sound public finances and coordinate their financial policies. The pact was reformed in April 2024: A new regulation stipulates that member states must present their financial and economic policies in the form of so-called fiscal and structural plans. According to this, the Federal Government should have presented its financial policy and structural plan last year. However, due to the early parliamentary elections, the Federal Government had agreed to an extension of the deadline with the European Commission.

With the resolution on the FSP--medium-term fiscal policy and structural plan, the Federal Government is for the first time setting out a so-called "net expenditure path".